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In our view, the Top‐6 IT companies are likely to report 11.3% QoQ rise in revenue
(2.5% in USD terms, muted on account of macro uncertainty and seasonal
weakness) in the quarter ended December 31, 2011, while the net profit may
increase by 16%. The margins are likely to be higher by 145 bps sequentially,
primarily due to 11.4% rupee depreciation in the quarter. In the reporting quarter,
the average INR/USD conversion rate was 51.0, as against 45.8 in the previous
quarter. In our view, Tech Mahindra would be hurt the most owing to its greater
billing in Pounds & Euros (both currencies having moved unfavourably against
the USD). Forex losses on account of hedges could limit the gains at the PAT level
and we believe that Infosys is best placed being the least hedged. While Infosys
may indicate bias towards lower end of FY12 USD revenue guidance (17.1‐19.1%),
the Company may however raise the EPS guidance to Rs. 146‐147 on account of
rupee depreciation.
Result Expectations
Cross‐currency Movements – Unfavorable for Q3FY12E: In Q3FY12, the IT
companies are expected to be hurt by 0.5‐1.5% due to unfavourable cross‐currency
movements, following 1‐2% unfavourable cross currency movements in the
previous quarter. Tech Mahindra will be hurt to the tune of 130‐150 bps in USD
terms, as the Company has highest exposure to billing in Pound.
Valuation & Recommendations
Technology stocks have outperformed the market in the quarter under review. We
remain “overweight” on the sector given the favourable rupee movement and
justifiable valuations. The large‐cap IT players – TCS, Infosys & HCL Tech – are
expected to provide 15‐25% upside over the coming year. We believe that lower
currency resets will drive earnings upgrade going forward, for us as well as the
consensus.
Key Things to Watch Out For: We expect some cautions in the managements’
outlook with regard to the demand with the first signs of 2012 IT budgets. We
believe budgets would be largely flattish.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In our view, the Top‐6 IT companies are likely to report 11.3% QoQ rise in revenue
(2.5% in USD terms, muted on account of macro uncertainty and seasonal
weakness) in the quarter ended December 31, 2011, while the net profit may
increase by 16%. The margins are likely to be higher by 145 bps sequentially,
primarily due to 11.4% rupee depreciation in the quarter. In the reporting quarter,
the average INR/USD conversion rate was 51.0, as against 45.8 in the previous
quarter. In our view, Tech Mahindra would be hurt the most owing to its greater
billing in Pounds & Euros (both currencies having moved unfavourably against
the USD). Forex losses on account of hedges could limit the gains at the PAT level
and we believe that Infosys is best placed being the least hedged. While Infosys
may indicate bias towards lower end of FY12 USD revenue guidance (17.1‐19.1%),
the Company may however raise the EPS guidance to Rs. 146‐147 on account of
rupee depreciation.
Result Expectations
Cross‐currency Movements – Unfavorable for Q3FY12E: In Q3FY12, the IT
companies are expected to be hurt by 0.5‐1.5% due to unfavourable cross‐currency
movements, following 1‐2% unfavourable cross currency movements in the
previous quarter. Tech Mahindra will be hurt to the tune of 130‐150 bps in USD
terms, as the Company has highest exposure to billing in Pound.
Valuation & Recommendations
Technology stocks have outperformed the market in the quarter under review. We
remain “overweight” on the sector given the favourable rupee movement and
justifiable valuations. The large‐cap IT players – TCS, Infosys & HCL Tech – are
expected to provide 15‐25% upside over the coming year. We believe that lower
currency resets will drive earnings upgrade going forward, for us as well as the
consensus.
Key Things to Watch Out For: We expect some cautions in the managements’
outlook with regard to the demand with the first signs of 2012 IT budgets. We
believe budgets would be largely flattish.
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